Mixed signals on UK inflation rate as one measure falls whilst another rises


The two official measures of inflation in the UK have moved in opposite directions according to the latest statistics from the Office for National Statistics (ONS).

The Consumer Prices Index (CPI) rose slightly in March to 3.5% from 3.4% in February, however the Retail Prices Index (RPI) fell to 3.6% from 3.7% in the previous month.

Consumer Prices Index

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The small rise in the rate of CPI inflation was attributed by the ONS to a smaller reduction in food prices over the past month compared to the same period last year. Cereals, meat, fruit and bread all rose in price over the past month compared to falls last year.

Rises in the price of footwear, clothing and computer games also helped to push up CPI inflation.

Bank of England inflation target

The Bank of England has a target for CPI of 2%.

Over the past few months CPI inflation has started to fall back towards this target, with predictions that by the end of the year inflation would be back down to 2%. It remains to be seen whether today’s figures represent a blip in an overall downward trend or if inflation will now start to creep back upwards.

Vicky Redwood, Chief UK Economist at Capital Economics said: Inflation should start to fall again before long, not least as last year’s rises in energy prices continue to fall out of the annual comparison.

“We also expect core price pressures to ease as the economic recovery loses momentum again.”

The small increase in the rate of inflation may make further Quantitative Easing measures less likely, with the Bank of England having to balance a sluggish economy, which is likely to benefit from additional QE, with relatively high inflation that many people fear will be pushed higher by the very same measure.